The Future of Real Estate

Brad DeLong says home prices won't fall all the way back to their 2000 values: "We aren't buiding more superhighways, there are no major transportation improvements on the horizon, America is filling up, and so land-value gradients are on the rise. If the income distribution continues to erode, we will wind up with higher prices for scarce positional goods--chief among which is location, location, location." That sounds correct to me, but of course it's locally specific -- the huge price run-ups in, say, Arizona didn't have much to do with objective supply constraints and many of these far-flung exurbs where we're seeing a lot of foreclosures right now aren't especially well located.

But beyond the medium-term outlook for home prices (which even on the "optimistic" view isn't very good in the aggregate), this is yet another reason to rethink some of our policies regarding land use. As Kevin Drum says, the idea that home prices won't crash all that much is appealing, but the prospect of ever-higher prices for housing over the long run is a bad thing. And it's not as if it would be impossible for more people to fit into, say, DC -- the main supply constraints are regulatory in nature and the regulations could be relaxed. Similarly, Manhattan's not about to be criss-crossed with expressways, but NYC-related congestion could be ameliorated through congestion pricing if the State Assembly weren't being so brain-dead. There are ways to make it affordable for people to live within a reasonable travel time from where they want to go, it's just a question of whether or not we want to do those things. Some of those things would cost money (more transit) or require fees (congestion pricing, higher prices for street parking) but others would be deregulatory measures that could greatly increase the efficiency of our investments in the built environment. And the overall implication for our quality of life are large.